Global Networks of Trade and Bits

Abstract

Considerable efforts have been made in the recent years to produce detailed topologies of the Internet. While Internet topology data have brought to the attention of a wide and somehow diverse audience of scholars they have been so far overlooked by economic analyses. In this paper we suggest that such data could be effectively treated as a proxy to characterize the size of the "digital economy" activities at national country level: we therefore analyze the topological structure of the network of trade in digital services (trade in bits) and compare it with that of the more traditional flow of manufactured goods across countries. To perform a meaningful comparison across networks with different characteristics we define a common null model for the number of connections among each country-pair, based on the hypergeometric distribution. Original data are thus filtered using different thresholds so that we focus our attention on the strongest links only, i.e., on links the represent a significant departure from the stochastic benchmark. We find that trade in bits displays a more sparse and less hierarchical network structure, which is more similar to trade in high-skill manufactured goods than total trade. Last, distance plays a more prominent role in shaping the network of international trade in physical goods than trade in digital services. JEL Codes: F14, L86, O33Keywords: Internet, hypergeometric, international trade, network analysis, distanceThe authors thank participants to the Trade NetWorkShop 3.0 held in Trento in December 2010 for insightful comments on an earlier draft of the paper. They blame each other for all remaining mistakes.